Inflation has fallen below the 2% target set by the Bank of England (BoE) in the year to September to 1.7%, the Office for National Statistics (ONS) has revealed.

This is the first time that consumer price index (CPI) inflation has dropped below the BoE’s target since April 2021.

On a monthly basis, the ONS said that the CPI was "little changed" in September, down from a rise of 0.5% a year previously.

Core CPI, which excludes energy, food, alcohol and tobacco prices, rose by 3.2% in the 12 months to September, down from a rate of 3.6% in August.

The largest downward contribution to the monthly change came from transport, with larger negative contributions coming from air fares, which was the largest positive contributor last month, and motor fuels.

The largest offsetting upward contribution came from food and non-alcoholic beverages.

Head of financial analysis at AJ Bell, Danni Hewson, described the drop below the BoE’s target as a "real milestone".

She said: "Lower air fares and falling prices at the pump have helped offset a slight rise in food inflation but when compared with those double digit increases in food prices endured by households in 2022 and 2023, these figures are pretty benign.

"The most important thing to remember whilst thinking about the inflationary picture is that for the most part prices went up and stayed at their elevated levels. Wages have nudged higher, as have benefit payments, but most people will still find their standard of living is way below where it was before the pandemic."

Looking ahead, several analysts have said this now puts pressure on the BoE to lower interest rates when the Monetary Policy Committee (MPC) meets next month.

The base rate was last lowered in August to 5%.

Chief executive at Chetwood Bank, Paul Noble, said that if the base rate is cut, this will "likely result in greater confidence in activity" across the property market, with a reduced cost of borrowing increasing demand for prospective buyers.

Head of active savings at Hargreaves Lansdown, Mark Hicks, added that easy access savings rates have already been falling, and while there are accounts still offering 5% or more, "they’re increasingly thin on the ground".

He stated that a cut in November would "spell the end of rates at this level for now".

Noble concluded: "What we can say is that, with the macroeconomic climate changing and a raft of new policies expected in the Budget, it will be important for consumers and investors to take stock of their finances over the coming months."

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